Berlusconi to resign after parliament OKs reforms

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Italy's president says Premier Silvio Berlusconi has promised to resign after parliament passes economic reforms demanded by the European Union to save Italy from getting engulfed further in Europe's debt crisis.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

ROME (AP) -- Premier Silvio Berlusconi lost his majority in Parliament on Tuesday, increasing the pressure for him to resign to calm markets roiled by Italy's inability to cut its public debt and spur growth.

In a closely watched vote, the Italian parliament approved the 2010 state accounts, but dealt Berlusconi a withering blow by revealing that he no longer commands enough support to govern much longer. He has refused to heed calls from all sides to step down.

Berlusconi's government is under intense pressure to enact quick reforms to shore up Italy's defenses against Europe's raging debt crisis. However, a weak coalition and doubts over Berlusconi's leadership have ignited market fears of a looming Italian financial disaster that could bring down the 17-nation eurozone and shock the global economy.

Late Tuesday after the humiliating vote, the 75-year-old leader met for just under an hour with President Giorgio Napolitano, who can dissolve parliament and call early elections. If Berlusconi resigns, Napolitano could also tap a caretaker leader to try to govern until an early election or try to seek a government with broad support.

Citing Berlusconi's allies, the ANSA news agency said Berlusconi wouldn't resign Tuesday evening but would discuss the results of the latest vote.

Tuesday's routine vote garnered 308 votes of approval and none against in the Chamber of Deputies. But 321 deputies abstained from voting -- most from the opposition center-left -- a tactic that laid bare Berlusconi's shrinking hold.

Berlusconi's margin was eight shy of the 316 votes he needs to claim an overall majority in the 630-member chamber. Next week, the government has a confidence vote on economic reforms that were demanded by the European Union. Without an outright majority in that vote, Berlusconi would be forced to resign.

"Today's vote was a clear confirmation that the ruling coalition has lost its majority, meaning that chances that Berlusconi will lose the confidence vote are very high," said Unicredit economists Chiara Corsa and Loredana Federico.

Berlusconi scrutinized the tally after the vote, trying to figure out who had abstained, and later huddled at his office with his top adviser.

"This government does not have the majority!" thundered opposition leader Pierluigi Bersani after the vote. "If you have a crumb of sense in front of Italy, give your resignation."

As Bersani spoke, Berlusconi scribbled his options on a piece of paper. An AP photo showed he wrote "resignation" and also "eight traitors," an apparent reference to former allies who had abstained.

Prior to Tuesday's vote, even Berlusconi's top ally Umberto Bossi of the Northern League urged the premier to leave.

"We asked him to step aside," said Bossi, the volatile ally who brought down Berlusconi's first conservative government in 1994. Bossi said Berlusconi should let his hand-picked successor, former Justice Minister Angelino Alfano, lead the government.

Italy is the eurozone's third-largest economy, with debts of around euro1.9 trillion ($2.6 trillion). Representing 17 percent of the eurozone's gross domestic product, it is considered too big for Europe to bail out like Greece, Portugal and Ireland already have been.

Even worse, a substantial part of Italy's debt needs to be rolled over in the next few years -- the nation needs to raise euro300 billion ($412 billion) in 2012 alone -- just as interest rates for it to borrow have been soaring.

Italy's borrowing rates spiked Tuesday to their highest level since the euro was established in 1999. The yield on Italy's ten-year bonds was up 0.24 percentage point at 6.77 percent.

A rate of over 7 percent is considered unsustainable and proved to be the trigger point that forced Greece, Portugal and Ireland into accepting financial bailouts.

Berlusconi last week took the humiliating step of asking the International Monetary Fund to monitor the country's reform efforts in a bid to reassure markets. On Wednesday, a separate European Union monitoring mission is to begin work in Rome to review measures taken so far.

The EU's questionnaire put to Italy ahead of the mission says "additional measures" will be needed beyond what Italy has pledged to do, to balance the budget by 2013, according to the text shown on Italy's Sky TG24.

"The economic and financial situation of Italy is very worrying and we want to help Italy through our rigorous surveillance," said EU Monetary Affairs Commissioner Olli Rehn.

Business leaders once enthusiastically backed the media mogul's leadership, but now some say his government has failed to revive Italy's stalled economy.

"(Italy) cannot go forward" with the soaring spread. "The country cannot stay in these conditions," said Emma Marcegaglia, who leads an influential Italian business lobby.

Corrado Passera conceded that widening spread between Italian and German borrowing rates is "certainly a cause for concern." But he expressed optimism that Italy would be able to refinance its debts, emphasizing Italy's primary surplus, low family and business indebtedness, strong manufacturing sector and high level of public and private assets.

"Italy will rebuild its credibility on the basis of a balanced combination of austerity and development that will reduce total debt and create sustainable development and jobs," he told an investment conference call.

The opposition center-left has long demanded that Berlusconi resign, citing sex scandals, criminal prosecutions and legislative priorities it says are aimed at protecting the premier's own business interests rather than those of the country. However, it has failed to come up with a leader and program to energize its base.

Jan Randolph, head of sovereign risk analysis at IHS Global Insight, said Berlusconi's resignation, if it ever happened, would bring a short relief rally to the markets.

"But Italy will not be out of the heat of bond markets until a solid and stable government actually implements austerity and undertakes reforms with strong credible leadership," Randolph said.